Japan Exchange Group is implementing the largest overhaul in Topix history, removing more than 600 companies—roughly a third of current constituents—under new eligibility criteria that target illiquid assets.
The restructuring addresses a structural inefficiency: the Topix has long carried a drag from small-cap, thinly traded stocks that inflate replication costs for large passive funds. The removal threshold targets companies whose free-float market capitalization ranks in the bottom 3 percent of Tokyo Stock Exchange-listed firms as of August.
The phased removal begins in October and extends over two years. Affected firms lose access to an estimated $1 trillion in capital passively tracked to the benchmark—a material outflow that may depress share prices for smaller removed stocks as funds rebalance.
The timing creates urgency: smaller firms have this month to improve free-float status or face ejection. The overhaul forces Japanese companies to meet higher liquidity and market-cap standards to maintain index inclusion, a structural pressure that reverses decades of Topix inclusionism.
